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In biotech, the popular valley of death meme is really just classic supply and demand

One prominent biotechnology venture capital researcher says the concept of the early stage funding valley of death is an “artifact” and actually a reflection of the classic supply and demand.

Many entrepreneurs, investors and life sciences industry veterans take the existence of the valley of death almost as an article of faith. The meme goes that young companies enter that valley, in which attracting investment capital becomes extremely difficult, at an early stage, typically between an initial round of angel funding and the company’s first institutional series A round.

“What has contributed to this misnomer, in general, is the acceleration of university-based tech transfer offices focused on building patent portfolios and spinning out record numbers of [new companies] who are seeking venture funding, and the contraction of availability of nondilutive (grant) funding,” Adam Rubinstein said.

That is to say that any perceived lack of funding available to young companies is largely arising from the idea that there are simply more young companies in existence. Couple that with less government funding available to those companies, and it’s easy to see why the valley of death meme begins to take hold.

But Rubinstein says the situation is merely “a simple and classical example of supply and demand.” More companies are competing for the same pool of VC dollars. “Life science capital put to work over the last 10-plus years has been pretty consistent, remaining in the $5 billion to $6 billion a year range,” he told Pharmalot.

Rubinstein’s conclusions match up with the recent observations of Cleveland-area entrepreneur Tim Moran, who discussed the topic at a recent panel discussion on venture capital.

The hard and uncomfortable truth for many hungry and hardworking entrepreneurs is that if they fail at fundraising, there’s probably a good reason for it, Moran said at the time.

“Maybe your idea just isn’t good enough, or you’re not a good enough entrepreneur,” he said.